What Europe is doing to its own people is insane and senseless and its all completely unnecessary.
When the EU nations formed a currency union they gave up the right to be the issuer of their own currency. They thought it would unify Europe (not a bad motive) and provide for a strong currency and robust economy. What they did was send themselves back to the gold standard days leading up to the Great Depression, by greatly restricting their fiscal and monetary policy options by foregoing their right to issue their own currency.
They made themselves like Kansas or Missouri. They couldn't issue 'Marks' (Germany) or 'Drachmas' (Greece) anymore, they had to collect Euros, either by taxing their people or borrowing them from banks.
When the crisis hit, overall spending dropped which then reduced tax revenues. Greece could no longer meets its obligations, it had to borrow. Interest rates on bonds went up making borrowing more costly. With very high interest rates Greece couldn't raise the funds through borrowing to meet its obligations and if it tries to raise more tax revenue it will only further the downward spiral by reducing spending even more. The only option left is to abandon the Euro.
However, the European Central Bank (controlled largely by Germany and France) has been stepping in to 'write the check', that is, lend funds at really low interest rates to Greece so it can meet its obligations, but with the stipulation that Greece 'balance its budget' or move to austerity. For some reason, they don't realize that doing so only contracts the economy further. This cycle has been going on for some time now and its leaving a most horrifying scenario for Greece and other nations on the Euro such as Italy, Portugal, Ireland, and Spain: "Children abandoned by Greek parents as cuts also sees country running out of medicine".
I did not coin this phrase, and can't remember where I heard it, but Greece and these other nations are heading for a 'Blood in the Streets' scenario so long as the ECB keeps writing the check but insisting on austerity. Things will get worse until the people revolt violently.
The U.S. will end up like Greece if we try to balance the budget. We will not end up like Greece if we spend more than we take it, because our government is the issuer of the currency. It is not a household or a state or member of the EU or nation on a gold standard which are users of currency. The message should be clear, but many are confounding it because they misunderstand the nature of 'modern money' (money without fixed exchange rates or gold standards).
If you hear that the U.S. must not spend beyond its means just like a household can't spend beyond its means, ask yourself, "just how exactly is the government like a household?".
A Ph.D. student's perspective on Catholic Social Teaching and economics.
The government is like a household in that it doesn't have the right to suck up all the wealth from all the other households.
ReplyDeleteHowever, it is unlike a household in that it is all the power (and often, the motive) to do exactly that.
Bryce, I appreciate the comment and your reading of my blog.
ReplyDeleteThe government should be for the people and by the people and in the U.S. we're told it is just that. We have many tremendous freedoms here including a democratic government, but there is no question that there is a lot of corruption in government, including the great amount of control corporations have over their own regulations.
This post isn't about the nature of government, in terms of its mission or purpose, but rather about its role as the monopoly issuer of the currency. So long as it collects taxes, which it needs to purchase a military and police and courts to uphold the law, it will need to name that which will be acceptable as payment in taxes.
Which means it has the power to name the currency or money of account over its constituency. It can give up its power as the issuer of currency like Greece has to be a part of the EU or like Virginia did to be a part of the U.S., but if it does so then it will be limited in what it can do to help a struggling economy.
That is what is happening in Europe. If we do what they are doing, then we will face the same consequences of massive unemployment and societal turmoil.
This does not mean that I am supporting big government. I am hoping to simply point out the consequences of the nature of modern monetary systems so that people are better educated and may then make better decisions concerning what they feel government should or should not do.
The government has the power to 'suck up wealth' and we give it the right to do so as a democracy. If we did not then they couldn't tax us to provide anything for us. If we are not a true democracy controlling our own government then we should talk about how to fix that.
I believe that is what the Occupy movement is mostly about.
I am not for more government, I am for a government whose purpose is the common good. As the monopoly issuer of the currency we use, it has a clear responsibility to run a deficit. What it spends and taxes I leave up to further debate, but the gap must be a specific amount for the well-being of the economy.